Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold gained 0.2%, rebounding slightly in light trade despite a rising dollar. S&P raised the U.S.AA credit outlook from negative to stable because of improving U.S. fiscal conditions, helping to give the dollar a lift and increasing yields on long-term Treasury bonds to their highest in a year. A rising dollar typically weighs on gold because the metal is denominated in dollars internationally, making it more expensive to holder of other currencies.

Today's dollar-related pressure on gold was offset by statements in support of ongoing monetary easing by St. Louis Fed President James Bullard. A voting member of the FOMC, Bullard said the Fed should continue quantitative easing, its program of buying $85 billion per month in long-term bonds, as long as inflation remains low. Annualized inflation fell to 1.1% last month, far below the Fed's target of 2% to 2.5%. QE supports higher gold prices because it devalues the dollar and increases the risk of long term inflation.

Gold was also buoyed by reports that China approved its first two gold-backed ETFs. Denominated in yuan, the new funds are expected to increase gold demand by making it much easier for Chinese citizens to buy bullion. Gold investment has exploded in China, the world's second largest gold consumer, as its burgeoning middle class looks for ways to protect its new-found wealth. The other metals followed gold higher, with silver rising by 0.8% while palladium added 1.2% and platinum inched up by 0.3%

At Comex close: August gold added $3, to $1,386; July silver gained 19 cents to $21.93; July platinum picked up $4.30 to $1,506.90; and September palladium rose $8.20 to $769.40 an ounce.